Guarantor Agreements In New Zealand: What To Know Before Signing

If you’re running a small business, it’s only a matter of time before someone asks for a guarantor on a deal.

It often comes up when you’re signing a commercial lease, setting up a loan or overdraft, buying equipment on finance, or opening trade credit with a supplier. And because you’re trying to get the deal done (and keep the business moving), it can be tempting to treat the guarantee as “just paperwork”.

But signing a guarantor agreement can create serious personal risk. In many cases, it can put your home, savings and other personal assets on the line if your business can’t pay.

Below, we’ll break down what a guarantor agreement is in New Zealand, when it usually appears, what to watch for, and the practical steps you can take before you sign.

What Is A Guarantor Agreement (And Why Do Businesses Get Asked For One)?

A guarantor agreement is a legal promise by an individual (or another entity) to pay a debt or perform an obligation if the primary party doesn’t.

In plain terms: if your business doesn’t pay, the other side may be able to pursue you personally (depending on the wording of the guarantee and the circumstances).

Most guarantor agreements in a business context are tied to a broader contract, such as:

• a lease (your business is the tenant, you’re the guarantor)
• a loan facility (your business is the borrower, you’re the guarantor)
• a supplier account (your business is the customer, you’re the guarantor)
• an equipment finance agreement (your business is the hirer/borrower, you’re the guarantor)

From the other party’s perspective, guarantees are about risk management. Many small businesses are new, don’t have a long trading history, and don’t have substantial assets in the business name. Even if you’re trading through a company, the company may have “limited liability” but also limited assets.

So the landlord, bank, or supplier may ask for a guarantor to improve their chances of getting paid.

If you’re trading through a company, it’s also worth understanding that personal exposure can arise in other ways too (not just through guarantees), including the responsibilities that can come with being a director: personal liability as a company director.

When You’re Most Likely To Be Asked To Be A Guarantor

You’ll usually see guarantor requirements when the other side is extending credit, handing over possession of valuable property, or letting your business “pay later”.

Commercial Leases

If your business is taking a retail shop, office, warehouse, or other premises, landlords commonly ask the directors to be guarantors. A lease can involve long terms and significant costs, so landlords want extra comfort.

It’s very common for the guarantee to be included in the lease itself or attached as a separate deed. This is a good time to have the lease (and the guarantor terms) reviewed properly: Commercial Lease Review.

Business Loans, Overdrafts And Equipment Finance

Lenders often require personal guarantees, especially for startups and SMEs. Even if the loan is “for the company”, they may still require the director/shareholder to sign as guarantor.

You may also see security documents alongside the guarantee, such as a General Security Agreement (often called a GSA). This can allow a lender to take security over the business’s assets (and, depending on the paperwork, other security may also be sought from the guarantor).

Supplier Trade Accounts And Credit Terms

Some suppliers offer 7-day, 20th-of-the-month, or 30-day terms, but ask for a director’s guarantee in the credit application. This can be easy to miss because it’s often “buried” in the fine print.

For example, you might apply for a trade account to buy stock or materials, and the credit form includes a personal guarantee clause. Once signed, the supplier can potentially pursue you as guarantor if invoices aren’t paid.

Franchise And Distribution Arrangements

Franchisors (and sometimes distributors) may require guarantees for ongoing fees, fit-out obligations, or minimum purchase commitments.

Even if your business model is strong, the guarantor clause can change your risk profile significantly.

What You’re Really Agreeing To When You Sign As A Guarantor

A guarantor agreement isn’t just a promise to “help out if things go wrong”. It can create an enforceable legal obligation that sits alongside the main contract.

While each agreement is different, here are the practical risks business owners should understand.

You May Be Personally Liable For More Than You Expect

Many guarantees cover not only the core debt, but also:

• interest (including default interest)
• legal costs for enforcement
• collection agency fees
• ongoing charges (like rent, outgoings, and reinstatement costs under a lease)
• losses caused by breach of contract

So even if you think you’re guaranteeing “a few months of rent” or “a small supplier account”, the amount could grow quickly.

A Guarantee Can Be “Continuing” (It Doesn’t Automatically End)

A common surprise is that a guarantee can be a continuing guarantee. That means it continues to apply to future obligations, not just what exists on the day you sign.

For example:

• If your supplier increases your credit limit later, the guarantee may still cover it.
• If your lease renews or rolls over, the guarantee may keep operating.
• If your finance facility is refinanced or varied, the guarantee might be drafted to still apply.

Whether a guarantee ends (and how) depends on the wording, and this is exactly where a legal review matters.

You Might Be Liable Even If The Creditor Doesn’t Chase The Business First

Some guarantees are drafted so the creditor can pursue the guarantor immediately, without first taking recovery steps against the company. In other cases, the guarantee may require the creditor to make demand on the business first, or meet other conditions.

So if cashflow is tight and an invoice is overdue, it’s possible the creditor might send the demand letter straight to you personally.

Enforceability Still Depends On Good Contracting Practices

In New Zealand, enforceability can turn on how the documents were prepared and signed, whether the terms are clear, and whether there were misleading statements made during negotiations.

As a baseline, it helps to understand the building blocks of enforceable agreements: what makes a contract legally binding.

Also keep in mind that business-to-business dealings can still be affected by laws like the Fair Trading Act 1986 (for misleading or deceptive conduct), depending on what was said or represented when you were asked to sign.

Key Clauses To Watch For In A Guarantor Agreement

Not all guarantor clauses are created equal. Some are relatively narrow, and others are extremely broad.

Here are the clauses we often suggest business owners look at carefully before signing.

1. “All Monies” Guarantees

An “all monies” guarantee is drafted to cover all amounts the business owes now or in the future, rather than a specific amount or specific contract.

This can be risky because it’s harder to quantify your exposure.

If possible, you may try to negotiate a cap (for example, a maximum dollar amount) or limit it to specific obligations (like “rent only”, excluding damages and legal costs). Even if you can’t get everything you want, it’s often worth asking.

2. Indemnity Language

Many guarantor agreements include both a guarantee and an indemnity.

While the two concepts overlap, an indemnity can sometimes give the creditor broader rights (and can reduce the defences that might otherwise be available to a guarantor). This is one of the key reasons you should read for “indemnify” / “indemnity” wording, not just “guarantee”.

In some cases, this may be set out in a standalone deed, like a Deed Of Guarantee And Indemnity.

3. Variation And Extension Clauses

Look for wording that says the guarantee continues even if the underlying contract is changed, renewed, varied, replaced, or extended.

This matters because you might agree to guarantee a deal that looks manageable today, only for the business to later renegotiate the contract (sometimes without the guarantor even being actively involved).

4. Joint And Several Liability (Where There’s More Than One Guarantor)

If two directors sign as guarantors, the agreement may say your liability is “joint and several”.

Practically, this can mean the creditor can pursue either guarantor for the full amount (and leave it up to the guarantors to sort out contributions between themselves later).

If you’re co-signing, it’s worth thinking about what happens if your co-director exits the business, becomes insolvent, or simply refuses to contribute.

5. Security Over Personal Assets

Some arrangements go beyond a guarantee and require additional security (for example, a mortgage, a charge over personal property, or other assurances). If you see references to security interests, enforcement rights, or registrations, it’s a sign you should slow down and get advice.

Even where security is “only” over business assets, it often sits alongside a GSA: General Security Agreement.

6. Default, Enforcement And Legal Costs

Pay close attention to:

• what counts as a default (it can be broader than “non-payment”)
• the creditor’s right to demand payment from the guarantor
• interest rates after default
• legal costs clauses (these can substantially increase exposure)

These terms are often where the real financial pain sits if things go wrong.

How To Protect Your Business (And Yourself) Before You Sign

Being asked to be a guarantor doesn’t automatically mean “don’t sign”. Sometimes it’s the commercial reality of getting a lease or financing approved, especially when you’re growing.

But you should treat it like a major business decision - because it is.

Step 1: Identify Exactly What You’re Guaranteeing

Before you sign anything, make sure you’ve got the full set of documents, including:

• the main contract (lease/loan/supply agreement)
• any attached schedules
• the guarantee clause or separate guarantee document
• any security documents (like a GSA)
• any “terms and conditions” incorporated by reference

A common trap is signing the guarantee without having the full underlying contract, or without noticing that additional terms are incorporated by reference.

Step 2: Consider Whether Your Entity Structure Is Actually Helping You

Many owners set up a company to benefit from limited liability. But if you personally sign as guarantor, you may be taking on personal liability for this particular deal, regardless of the company structure.

This doesn’t mean using a company is pointless - companies still matter for tax, ownership, operations, and risk management - but it does mean you should be clear-eyed about where the risk actually sits for this transaction.

It’s also a good moment to consider what other protections you have in your contracts, like a sensible limitation of liability approach in your customer/supplier terms (where appropriate).

Step 3: Negotiate The Guarantee (Yes, You Can Ask)

Business owners sometimes assume guarantees are “non-negotiable”. In reality, some terms can be negotiated, especially if you have alternatives (another property, another supplier, another lender) or a strong financial position.

Common negotiation points include:

• Capping the liability (a maximum dollar amount)
• Limiting scope (for example, rent only, excluding damages/indemnities)
• Time limits (for example, the first 12 months only)
• Release triggers (for example, the guarantee ends after a certain trading history)
• Removing “indemnity” wording or narrowing it

Even if the other side won’t move on everything, a small improvement in wording can meaningfully reduce your risk.

Step 4: Think About The “What If” Scenarios Early

It can feel uncomfortable, but it’s smart business planning.

Ask yourself:

• If revenue drops for 3 months, can the business still meet this contract?
• If you lose one major customer, what happens?
• If you want to sell the business, will the guarantee be released at settlement?
• If a co-founder leaves, who remains as guarantor?

If you have multiple founders or directors, those “what if” questions should also be backed by clear internal agreements about decision-making and responsibilities. (A guarantee is a personal obligation, but the decision to take that risk is often a shared business decision.)

Step 5: Get A Legal Review Before You Sign

Guarantor agreements can be deceptively short, but the consequences can be significant. A legal review helps you:

• understand the real scope of your exposure
• spot hidden “continuing” or “all monies” language
• identify if you’re also signing an indemnity
• negotiate wording changes with confidence
• avoid signing documents that don’t match the deal you think you’re getting

It’s also worth remembering that business decisions aren’t made in isolation. Your obligations as a director and the way you exercise decision-making can matter over time - especially where money is involved and risks are being taken on behalf of the company. For directors, it can help to understand the broader framework around duties like fiduciary duty in business decision-making.

Key Takeaways

• A guarantor agreement is a personal promise to cover a business debt or obligation if the business doesn’t pay, and it can expose your personal assets.
• Small business owners are commonly asked to sign as guarantor for commercial leases, loans, equipment finance, and supplier trade accounts.
• Many guarantees are drafted broadly (including “all monies” and “continuing” guarantees) and may include indemnity wording, which can increase risk.
• Watch for clauses on scope, duration, contract variations, joint and several liability, default interest, and legal costs, as these can significantly affect your exposure.
• You can sometimes negotiate guarantee terms, such as a liability cap, narrower scope, or release triggers - but you need to identify the leverage points early.
• Before signing, make sure you have the full set of documents (including any security documents like a GSA) and consider getting a legal review so you understand what you’re committing to.

This article is general information only and does not constitute legal advice. For advice about your specific situation, you should speak to a lawyer.

If you’d like help reviewing a guarantor agreement (or negotiating changes before you sign), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.